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When Apple and Motorola Fight, Only the Lawyers Win

The best option for both companies is to settle quickly and quietly.

It's always a good idea for investors to remember that executives at big companies are as human as the rest of us, and just as prone to letting their egos keep them from acting rationally. Motorola's (NYSE: MOT) decision to lob a patent lawsuit at Apple(Nasdaq: AAPL) is a good example; and with Apple having just returned fire with a lawsuit of its own, the result is a costly legal battle in which only the patent lawyers stand to gain much of anything.

One of the open secrets of the mobile phone industry is that just about every major phone manufacturer owns some key patents that are used by rival manufacturers; and, for the sake of keeping bad blood and legal fees down, the common thing for these companies to do is either look the other way, or quietly work out cross-licensing deals in which little or no money changes hands. That's how old-guard manufacturers such as Motorola, Nokia(NYSE: NOK), Samsung, LG, and Sony Ericsson have generally done things for well over a decade, and it easily beats the alternative.

But Apple's very successful entry into the most lucrative part of the cell phone business -- high-end smartphones -- has clearly frayed more than a few nerves in rival boardrooms. And that's apparently driving some of the incumbents to lash out against the upstart by means of patent lawsuits -- never mind that Apple has a healthy patent portfolio of its own, revolving around patents for multi-touch screens and other user interface features commonly found on competing smartphones, whether running Nokia's Symbian, Google's (Nasdaq: GOOG) Android, or Research In Motion's (Nasdaq: RIMM) BlackBerry OS. Nokia was bothered enough by Apple's success to file a lawsuit against the company last year, and last month, Motorola decided to join the party. And in each case, Apple predictably came back with a countersuit.

If Nokia and Motorola were more level-headed, they'd only send their patent lawyers after those upstart phone manufacturers that don't have strong patent portfolios to defend themselves with. That's the approach that Apple itself took in choosing to file a lawsuit against HTC, which has become a premier Android manufacturer, but leaving the old-guard manufacturers alone. HTC's limited patent portfolio was seen as a good argument for the company to acquire Palm and its considerable intellectual property assets, before Palm was snapped up by Hewlett-Packard(NYSE: HPQ). Almost no one suggested that Apple needed to acquire Palm for this purpose, and with good reason.

But since Motorola decided to follow Nokia's lead and go to war against Apple in the courtroom, we can expect to see the two phone manufacturers waste millions over the next year or two arguing before judges what seems quite obvious to everyone: that each company is infringing on the other's patents.

And when the dust finally clears, we'll probably have a settlement in which both companies admit as much, and agree to a sensible cross-licensing deal. Maybe some cash will be transferred from one company to the other in the deal, but chances are that neither will be better off than they would have been if Motorola's executives had kept their egos in check and worked out such a deal before unleashing their patent lawyers on Apple.